<< Based on the dependence of the tax rate at retirement, doesn't it make sense to diversify based on taxes. By this I mean invest equal amounts in tax deferred and taxable accounts up to the allowable in the tax deferred accounts. Sure, this won't give you the highest returns but it will give some protection to the uncertainty of taxes in the future.

An example: You have $6000 to invest. You can still contribute $3000 (after match) to your 401(k). You get 10% return in the 401(k) and 13.89% in the taxable. I suggest splitting the money between the 401(k) and taxable account. Of course if you can easily beat 13.89%, then it should go to the taxable.

It appears that there is alot of uncertainly in future tax rates. The Republican propose abolishing the tax code by 2005 to force a rewrite of the tax laws. Proposals include a flat tax, a consumption (sales) tax, and lowering the capital gains tax. It appears that the flat and consumption tax would favor money put in today's tax deferred accounts and lowering the captial gains tax would benefit taxable accounts.

Investing is a personal choice (borrowed that from you Pixy). We all have to speculate on the future. My proposal is just an opinion. As long as we stay in the stock market and beat inflation, we will all get to the finish line even if it is not in first place.>>

I can't dispute any of that. At the indifference point I could easily justify a 50/50 split in tax deferred and taxable due to the uncertainty on future taxes. That way the Congress could swing either way and the bet would be hedged. As you pointed out, the important thing is reaching the finish line. Truth be known, either approach will get you there. Sure, if we could reliably predict what will happen, then one would get us there in more style. Absent that, we just gotta make the best stab possible.